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Key Highlights

* The International Cotton Advisory Committee has scaled up its forecast for global prices in 2020-21 (Aug-Jul), as ending stocks for the ongoing season are estimated to be lower. The committee has revised upwards its price forecast for Cotlook A index, a global benchmark for prices of raw cotton, by 3 cents from the previous month to 79 cents per pound. Lower stock levels provide additional support for prices which have increased over the course of the current season supported by falling production and rising consumption. Global ending stocks for the season are estimated at 20.9 mln tn, compared with 21.4 mln tn in the previous season. Global production for the ongoing season is estimated at 24.1 mln tn, down 8% from the previous season. The fall has largely been attributed to a smaller crop in the US, Brazil, and Pakistan. Production in India, is expected at 6.3 mln tn, compared with 6.2 mln tn in the previous year. In the US, cotton production is estimated at 3.2 mln tn, against 4.3 mln tn a year ago. The committee has estimated global consumption at 24.5 mln tn, compared with 22.8 mln tn last year as manufacturing activity continues to show signs of recovery. Global exports are seen higher at 9.5 mln tn, compared with 9.0 mln tn a year ago.

* The UK-based Cotton Outlook has marginally lowered its estimate for global output in 2020-21 (Aug-Jul) by 85,000 tn to 24 mln tn in its March report. The estimate has been scaled down largely because production is expected to be lower in India and the US. Output is seen higher at 6.3 mln tn in China. For the current season, the agency has lowered its crop estimate for India, the largest producer, to 6.1 mln tn from 6.2 mln tn projected a month ago. Production in the US is seen at 3.2 mln tn. Global cotton consumption in 2020-21 is seen at 24.9 mln tn, against the 24.5 mln tn projected in the previous month. Consumption is seen marginally higher on likely rise in demand from the Indian subcontinent, China and Turkey. As textile supply chains have recovered following the most acute phase of the COVID-related disruption, many spinners have enjoyed good profits and some have been adding new capacity. Ending stocks of the fibre for 2020-21 are seen at 814,000 tn, against 417,000 tn projected last month.

* The Cotton Association of India has marginally lowered its production estimate to 35.9 mln bales for the year from 36.0 mln bales in 2019- 20. Of the total crop, around 29.9 mln bales have arrived in markets across India till February. The Cotton Association of India has raised its export estimate for the ongoing 2020-21 (Oct-Sep) season to 6.0 mln bales (1 bale = 170 kg) from 5.4 mln bales projected in the previous month. In the current marketing year till February, India has shipped around 3.6 mln bales. The association has scaled down its estimate for ending stocks to 10.6 mln bales, against 11.5 mln bales projected a month ago. Domestic consumption is maintained at 33.0 mln bales in 2020- 21, while imports are now pegged at 1.2 mln bales compared to 1.4 mln bales a month ago.

* The US Department of Agriculture has scaled down India's cotton ending stock estimate for 2020-21 (Aug-Jul) to 17.4 mln bales (1 US bale = 218 kg) from 18.1 mln bales pegged in February. The downward revision in stocks is mainly due to higher export estimate for the country. On the export side, higher Indian exports account for most of the increase as auctions by the Cotton Corp of India have released much of the cotton purchased last year under the minimum support price. The agency, in its World Agricultural Supply and Demand Estimates report for March, revised its export estimates for India to 5.7 mln bales from 5.0 mln bales in the previous month. Production and domestic consumption estimate for India is maintained at 29.0 mln bales and 24.3 mln bales, respectively. USDA has scaled down its global cotton production estimate for 2020-21 to 113.3 mln bales due to smaller crop in Brazil and the US. The agency had pegged global production at 114.1 mln bales a month ago. Global cotton consumption is seen marginally higher at 117.5 mln bales. Exports are now seen at 44.5 mln bales, compared with 43.9 mln bales. Ending stocks are expected to be lower at 94.6 mln bales compared with 95.7 mln bales.

* In the Union Budget for 2021-22 (Apr-Mar), Finance Minister Nirmala Sitharaman proposed customs duty of 5% on cotton and 10% on cotton waste. She also proposed an Agriculture Infrastructure and Development Cess of 5% on cotton, taking the overall customs duty to 10%. Customs duty on raw silk and silk yarn or yarn spun from silk waste has been increased to 15% from 10% earlier. • The area under major kharif crops so far in 2020-21 (Jul-Jun) was at 111.7 mln ha, up nearly 5% from a year ago, farm ministry data showed. Farmers have sown cotton across 13.04 mln ha in the 2020-21 (Jul-Jun) season, up by 2.1% from a year ago, as of 25th Sept., farm ministry. India's cotton output in the 2020-21 (Oct-Sep) marketing year is seen at 38.0 mln bales (1 bale = 170 kg), up 4% on year, according to traders. Govt. pegs 2020-21 cotton crop at 37.1 mln bales vs 35.5 mln bales. While, according to Cotton Advisory Board, India's cotton output in the 2019-20 season is projected at 36.0 mln bales (1 bale = 170 kg), compared with 33.0 mln bales a year ago.

* The government has raised the support price of medium staple cotton by 260 rupees per 100 kg to 5,515 rupees, and that of long staple by 275 rupees to 5,825 rupees.

* The government has increased the maximum sale price of Bollgard II cotton seeds for the next financial year starting Thursday by 5%. According to a notification, the government has revised prices of 450 gm packets of Bollgard II to 767 rupees a packet from 730 rupees this financial year. However, it has kept the price of the Bollgard I variety of cotton seeds unchanged at 634 rupees a packet.

* The Department of Agriculture’s Commodity Credit Corporation announced a special import quota for upland cotton that permits importation of a quantity of upland cotton equal to one week’s domestic mill use.

Commentary on Cotton

* May month delivery cotton no:2 rose more than five percent on reports of rise in global exports amid lower production and higher consumption. The U.S. Department of Agriculture in its April supply and demand report raised its estimates for U.S. exports 250,000 bales to 15.75 million bales for the 2020/21 marketing year. The higher exports forecasts brought ending stocks estimates down to 3.9 million bales.

* Expectation of rise in Chinese demand for cotton will be key attribute to watch coming months.

* April MCX cotton prices rose nearly three percent tracking gains in international ICE cotton prices along with expectation of higher export estimates in coming days. The association has raised its export estimate for the ongoing 2020-21 (Oct-Sep) season to 6.0 mln bales from 5.4 mln bales projected in the previous month. Moreover, demand from textile industry is likely to keep the prices in northward trajectory in coming days.

Technical Chart

Technical view

* Prices is required to clear the resistance of $83.43 to continue current upside momentum towards $85.16 and then to $87.87/$90.26 or even higher to $93 levels. Meanwhile, weekly (RSI) is treading higher suggesting bullish moves in the near term. But, major weakness is seen once it clears the downside support of $77 levels.

Technical Chart

Technical view

* If prices able to trade above the trend line support of 21750 expect buying momentum to continue towards 22050 levels. But, it is necessary to clear the upper trend line resistance at this level to continue buying moves targeting towards 22300/22600 or even higher to 23000 levels. Meanwhile, weekly RSI (14) is treading at 64, suggesting upside moves cannot be ruled out. However, if prices breaks slips below 21700 could see downside moves towards 21500/21250 levels.

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